| HOME PAGE | FRONT PAGE | EDITORIAL/OPINION | NEWS / COMMENT | TIMESPORTS
The Colombo stock market showed signs of awakening from its two year long stupor last week with better investor sentiment driving the all share index beyond the 700 mark.
"Investors have begun to look beyond the political overhang," Jardine Fleming Securities Deputy General Manager Deva Ellepola says.
"Every one knew that the market was undervalued and now the sentimental barrier seems to have been broken."
Though corporate earnings have shown steady improvement over the last few quarters laying the foundation for a take-off, prices did not move up significantly, with the security concerns increasing political risk.
The PA-UNP agreement on the ethnic issue seems to have triggered the buying spree, with investors believing that the government now was in a stronger position to bring about a solution.
Foreign investors have been net buyers during the last few days, though local retail and institutional buying has also increased.
On Friday April 4, the all share index closed at 640 with foreign funds buying up Rs 201 mn worth of shares and selling only Rs 53 mn. When the market closed for the New Year holiday on April 11, the index had moved up to 665 points.
On the first day of trading after the New Year last Wednesday the All Share Index shot up to 689 points. Foreign purchases were Rs 125 mn and sales Rs 61 mn.
On Thursday the index topped the 700 point market to close at 706 points.
"It is now at a 52 week high," one analyst said. The previous high had been reached on May 11 last year when the all share passed 708.
Local buyers have also rushed to buy in the wake of strong foreign buying. This was not merely the herd instinct.
"Low interest rates and increased liquidity in the economy have also channell funds into the market," says Mahendra Jayasekera, Head of C. T. Smith Stockbrokers.
Treasury bill rates have been low in recent weeks and the lowering of the reserve requirement is estimated to have increased liquidity in the economy by more than Rs 10 bn.
"Political uncertainty in India would also make investors to look at Sri Lanka again," Mr. Jayesekera says. But this could be a double edged sword as investors sometimes tended to look at regions as a whole as Sri Lanka could also be hit by a fallout in India.
However there is doubt that the market could sustain its upward momentum with most analysts expecting profit taking to arrest the prices.
"We feel that the market would now consolidate," says Mr. Ellepola. Investors have shown interest mainly in manufacturing, banking and plantation stocks, one analyst said.
One factor that is still holding back investors is a power shortage which will hit the manufacturing sector hardest though most companies are better prepared for power cuts this year.
Another concern has been that prices have moved up on relatively thin trading, which may prove unsustainable once supply improves with higher prices driving more shareholders toward profit taking.
On Wednesday 83 companies moved up while 5 companies lost ground.
"Prices of some stocks have moved up without their profits improving to justify the increases," observed one analyst.
This could either point to a re-rating of the market or to short lived enthusiasm which may soon run dry. The first quarter results that are now due could help sustain prices if there is a further general improvement in profits.
Renenewed expenditure on defence or terrorist attacks on economic targets could also put a damper on sentiment.
"But the key to sustained growth would be the performance of the banking sector," the analyst said.
The sector accounts for a third of the market and has traditionally been the driver of bull runs. There are concerns that profits in the sector is not as good as seen on paper.
Profits of National Development Bank for example has been sustained with reduced provisions. Profits, at least in commercial banks would be boosted with increased lending being possible after the lowering of the reserve requirement, provided loan demand also picks up.
Analysts say lending rates had not moved down sufficiently after the latest reserve cut as the two state banks had not significantly reduced lending rates, making the banks the biggest beneficiary of the reserve reduction.
Generate power
If the prospects of a power crisis has sent shivers down the spines of the business community, not everybody is unhappy.
Several business houses importing generators have received bulk orders and business is as good as it was last year.
The orders surged after the government announced a ban on air-conditioners and no one is taking a chance this year despite government assurances that there will be no power cuts....
Discounts possible
Taking a cue from private telephone networks, the state phone network will also soon offer discounts to customers, we hear.
Initially, the discounts will be for international calls to selected countries for selected periods.
And naturally, countries where a large number of Sri Lankans are domiciled will be chosen for the concessions....
Cricket bat ads
State TV has made a hue and cry about cigarette and liquor advertising, even obliterating pictures of someone smoking a cigarette or taking a drink.
If that is the policy, here is a question: Most Pakistani cricketers carry bats advertising a brand of cigarettes. Will pictures of those also be obliterated, when the test matches are telecast on TV?
A similar situation arose, we recall, in Australia and Wasim and Co., agreed to cover the offending logos after some gentle persuasion.
Will we do the same?
The Meridian Group which specializes in reclaiming Value Added Taxes for companies worldwide and the largest global player offering this service has established a presence in Sri Lanka.
Most companies are unaware that they are entitled to reclaim VAT charged on many business expenses incurred while travelling in Europe, such as hotel accommodation, car rental, petrol, training, exhibition etc. The standard rate of VAT in countries in the European Union varies from 15% to 25%.
Sri Lankan companies can now benefit by reclaiming VAT - which under normal circumstances would not be recovered. Meridian will assist such companies with the entire claim procedure for a fee that is payable only on successful refunds. The claim procedure extends to expenses incurred by companies in the UK since 01 July 1996 and elsewhere in Europe since 01 January 1996, a news release said.
Jon Harris, Business Development Director of Meridian VAT ReClaim UK, was recently in Colombo to launch the Sri Lankan operation which will be headed by Mrs. Kamini Mukunthan as General Manager. "We believe Sri Lanka has tremendous potential in exports. There has been a 36 percent growth in exports from Sri Lanka to the UK market as such we see excellent opportunities to assist Sri Lankan Companies reduce their European Business Travel Expenses", Harris has said.
With an impressive client base worldwide that includes several mega multinationals, Meridian is actively expanding their global network to enable companies to benefit from their services.
The VAT ReClaim procedure is extremely simple. It requires original invoices on which VAT payment has been recorded - the rest is handled by Meridian who process the claim and remit the proceeds in foreign currency nett of their fees. There is provision for retroactive claims which means that companies who have incurred expenses during 1996 are eligible to seek refunds.
Reports that US cigarette makers are holding secret talks on a settlement to cover the tobacco industry's liability in all lawsuits sent tobacco stock soaring on Wall Street, agency reports said.
Investors acted on the belief the pending agreement would shield the tobacco industry from massive lawsuits by state governments and individuals.
The Wall Street Journal, which broke the story, said the talks "represent an extraordinary turning point in the four-decade-long controversy over cigarettes' toll" on the health of smokers.
The secret negotiations, begun three weeks ago, could include payment to tobacco-lawsuit plaintiffs of 300 billion dollars over 25 years.
Cigarette makers would also agree to tight regulation by the Food and Drug Administration (FDA) and advertising controls under which they would cease using people — including that world-renowned icon, the Marlboro Man — in ads.
In exchange, Philip Morris Cos., RJR Nabisco Holdings Corp. and other cigarette makers are seeking shelter from a rising tide of lawsuits filed by individuals and state governments over damage to smokers' health.
Twenty-two states have filed suit against the tobacco companies. One small company, Liggett, settled with the states in mid-March.
In a statement, the attorney general for the midwest state of Minnesota — one of the plaintiffs — said the tobacco industry had so far not gone far enough toward redressing the "tremendous harm" it has inflicted on smokers.
"This is a desperate industry that is on the ropes in court, and it hopes throwing smokers' money at the problem will make it go away," Attorney General Hubert Humphrey said.
Some anti-tobacco activists noted that 300 billion dollars over 25 years was a drop in the bucket for an industry with revenues of 45 billion a year, and insignificant compared to the estimated 50 billion to 100 billion the country spends annually in smoking-related ailments.
Patrick Reynolds, the grandson of R.J. Reynolds and current director of the California-based Foundation for a Smokefree America, said "300 billion dollars is a drop in the ocean compared to what they (cigarette makers) might have to pay if the attorneys general will see these suits through in court.
"We have a moment of tremendous opportunity, and if we settle now we may look back well into the next century, when the tobacco companies are doing business as usual, and see this as a lost opportunity," he added.
In another development the World Health Organization has recently relelased startling new data on the effects of tobacco use.
An estimated 1.1 bn smokers worldwide are thought to consume 6000 bn ciggarettes a year.
Three million deaths are believed to be caused each year due to tobacco related illnesses, which amounts a to a death every 30 seconds.
By 2010 tobacco related deaths are forcast to grow to 10 million a year.
Meanwhile the Canadian Senate, one vote shy of unanimity, passed a bill banning television, radio and billboard advertisements of tobacco products throughout Canada.
Ceylon Electricity Board's fuel expenditure has shot up by Rs. 252 million over the past three months, The Sunday Times Business learns.
The Board's fuel bills which stood at Rs. 385 million, a month in December 1996, had gone up to Rs. 637 million by March 1997.
The sharp rise in fuel expenditure is likely to continue and the CEB is expected to commission only thermal plants in the next 2-3 years.
In addition to the 115 MW gas turbine which is to be commissioned in May at Kelanitissa and the 40 MW plant at Sapugaskanda, the CEB is also planning a 150 MW combined cycle plant at Kerawalapitiya. This means that an additional 355 MW of thermal power are already planned.
In addition to incurring fuel expenditure for its own plants, the CEB also has to pay hired plants, Aggrekko, KoolAir and Woodgroup, a 20 MW plant will be commissioned in Pannipitiya within the next 2 weeks. The CEB reportedly has paid the Aggrekko company alone Rs. 146 million for March, for rental fuel and electricity generation.
The non-implementation of low cost plans which were rejected by various governmental ad hoc committees for many reasons during the last few years have created this crisis, a CEB official alleged. At present we are left with no option but to commission thermal plants which can be set up speedly, he said. The down side to these plants is that electricity generated by the thermal plants cost more than the power generated by hydro plants.
The CEB would also be in a tight situation should the mid-May monsoons fail as the reservoir generation capacity would have come down to about 100 aw/h by then making extensive power cuts inevitable, he explained.
The CEB's financial reserves are also running out with the constant need for additional funds for fuel and power sector development work. About eight per cent of annual revenue goes into reserves. This sum which amounts to around Rs. 1 billion has not been channelled into reserves last yearwhile reserve funds are diminishing at an alarming rate.
The electricity tariff hike is also expected to be announced within a few months after discussions with the Ministry officials. A CEB official termed the tariff hike as 'inevitable', explaining that the CEB cannot continue to exhaust its reserves any longer.
The South Western Monsoons are expected around May 20th, a Meterology official, K.R. Abeysinghe told The Sunday Times Business.
Judging by the data currently available there is nothing to suggest that the monsoon would fail or not arrive on time. However, past experiences have proved that the monsoon could arrive a few weeks early or even a few weeks late. This was the case last year when the South Western Monsoon was 3 weeks late. Mr. Abeysinghe did not overrule the failure in the event of a change in the wind pattern.
Meanwhile CEB's new coal power plant in Kalpitiya has also run into trouble. Around 100 acres of crown land, to be used for the plant have been leased out to residents of the area for farming. Deputy Power Minister Nimalasiri Jayasinghe and some MP's of the area together with CEB officials visited the area on April 3 to discuss the situation with the residents. Residents who agreed to permit the Electrowatt engineers to carry out their feasibility study are later alleged to have attacked the engineers damaging their equipment.
As a result all work on the feasibility study have come to a halt. The CEB has already come to an agreement with the Sri Lankan Navy regarding security for their offshore work while security for the other work is to be shortly discussed with Power and Energy Minister Mr. Anuruddha Ratwatte.
CEB Additional General Manager (Transmissions) D.G.D.C. Wijeratne told The Sunday Times Business that the Kalpitiya site was one of the best available. Trincomalee under the present security situation is impractical while as suggested by a recent weekend newspaper, to even consider Negombo as a possible site is also quite absurd, he said. "This is mainly due to the fact that Negombo is a highly popular area where land to the extent needed for a coal power plant cannot be obtained without thousands of people being displaced. The other identified site is Mawelle in the Southern province was abandoned some years back as a result of the residents of the area protesting and the then government issuing a decree stopping any work on that plant," he added.
The 3-4 KM conveyor belt to be constructed onto the sea was also defended by Mr. Wijeratne, as this would enable larger ships to come in and unload coal which is far more economical in the long run than having smaller ships come in closer to the shore, as coal transported in larger ships cost substantially lesser than that which is transported in smaller ships.
Mr. Wijeratne also added that Sri Lanka was resource poor nation. "We only have the capacity to generate a limited amount of hydro electricity. Natural mineral resources like crude oil, gas and coal are not available in Sri Lanka," he added.
The business community and indeed everyone interested in the development of the country have welcomed the agreement reached by the government and the main opposition party, the UNP, to adopt a bipartisan approach to the ethnic issue. This agreement has inspired a degree of confidence that the long outstanding conflict would be resolved. A bipartisan approach would certainly give the negotiations a greater degree of credibility and strengthen the government's negotiating capacity.
Yet there are doubts and a degree of scepticism as to whether this agreement would be implemented in the correct spirit. The reasons for this lie in the historic behaviour of both parties, which have been antagonistic to each other and discredit each other on every move designed to resolve the ethnic issue. Let us hope that this has changed and that a new spirit of co-operartion has emerged, not only in the interest of the two parties themselves but the nation's development.
The gains to the economy on resolving this problem are now well known. We will not elaborate on that. Even the possibility of resolving the problem has generated business confidence the results of which are emerging. This optimism however requires material manifestation of moving towards a settlement to be sustained.
We also hope that this bipartisan approach to the most crucial problem facing the country would be extended to other areas as well. As Dr. Gamani Corea recently pointed out in his reflections on post independent economic development at the Annual Sessions of the Sri Lanka Association of Economists, the discontinuity in planning economic policies cost the country vital gains in economic growth. What one party did, the other discarded. There were also drastic changes in economic policies as one government succeeded another. Even institutions which were created by one government were neglected by the other. This partisan approach to economic and social policies has cost the country much.
There was new hope generated when the People's Alliance professed to continue the economic policies pursued since 1977. This they have largely done and for once there is a continuity of economic policies.
There are further gains for the country if the government and opposition together agree on educational reforms, health policies, large development projects and institutional developments. Then the country could progress at a much faster pace . The bipartisan approach that has emerged with respect to the ethnic confict must be extended into these areas. In fact a bipartisan approach in these areas is in the national interest as party differences have no relevance in the formulation of many economic and social policies.Such a bipartisan approach would change the country's vision from one geared to the short term of a government's office to a much longer term interest of the country.
Among the important areas bearing on economic performance are three which require to be specially mentioned. First is a bipartisan approach to electoral law and their implementation so as to avoid the kind of intimidation, impersonation and violent election behaviour. A more orderly democratic process and electoral behaviour would indeed inspire a degree of confidence in the country's stability and orderly government.
Related to this and equally important is the need for a bipartisan approach towards establishing an independent police service. Political interference in the police has made the implementation of law and order almost impossible. The main political parties must get together to resolve this problem in the interests of the country. The country's economy cannot grow in a context devoid of law and order.
The third area in which a bipartisan approach is vital is the reform of the administration and the establishment of an independent public service. A bipartisan approach to this could avoid the kind of vitiation of efficiency that has occurred owing to the politicising of the service An independent strong bureaucracy is vital for development and its independence can only be guaranteed by a bipartisan approach.
In the country's 50 years since independence the economy, the polity and society suffered enormously owing to extremes in political antagonism and a lack of a national consensus on the vital issues for development. The realisation that a bipartisan approach is necessary to solve the ethnic problem must be extended to other areas of national concern. Such an approach could have an enormous impact on the pace and momentum of economic growth and development.
Please send your comments and suggestions on this web site to
info@suntimes.is.lk or to
webmaster@infolabs.is.lk